Convention Center Cave-In?

A proposed $17.8 million settlement for convention center cost overruns pits politics as usual against a voice from the grave.

The end result is a handsome and useful building, but the expansion of the Memphis Cook Convention Center was, by general agreement, a textbook case of a botched public building project.

In contrast to the mantra of the construction team of the FedExForum, the convention center expansion was not on time, was not within budget, and did not exceed expectations. It opened two years late, required a host of outside consultants, spawned lawsuits, forced the Memphis Symphony to scramble for a temporary home in a church, cost the city millions of dollars in lost convention business, and came in $24 million above its cost estimate of $68 million.

Now the question is ... who should pay for the problems? The blame game is in the final minutes of the fourth quarter. The general contractor, Clark Construction Group, has sued for $27 million, including $14.7 million still owed to local subcontractors, who are somewhat akin to hostages in the negotiations. But attorneys for the convention center's board say Clark is entitled to much less than that, was responsible for most of the delays, and should pay the subcontractors out of the $75 million the company has already been paid.

Next week, the Shelby County Commission will decide whether to settle the case by paying Clark an additional $17.8 million.

The commission's decision will be a textbook case of another kind. On one side is a powerful voice from the grave, former commissioner and convention center board chairman Morris Fair, who fought against the settlement before his death on April 7th. On the other side is a powerful voice from Washington, D.C., and the Democratic Party, former U.S. senator James Sasser of Tennessee, who lobbied mayors Willie Herenton and A C Wharton on behalf of Clark.

The Bethesda, Maryland-based contractor is a powerhouse in the construction business, with projects such as the National Museum of the American Indian in Washington, the San Diego Padres' new ballpark, McCormick Place West in Chicago, and one of Enron's office buildings in Houston.

At a time when both the city and county are preparing their annual budgets, the convention center cost overruns shed some light on the politics-as-usual that created the county debt mess. Both mayors talk a good game on fiscal responsibility. One year ago, both were ready to go to court if Clark would not settle for about $3 million. Fair and other board members agreed, arguing that the city and county had a strong case backed by expert documentation. But earlier this year, under pressure from Sasser and the contractors, the mayors did an about-face and told city attorney Robert Spence and county attorney Brian Kuhn to settle with Clark for $17.8 million.

"We hope to settle," said Jim Huntzicker, chief financial officer for Shelby County. "We have had a settlement on the table for 30 to 60 days."

Figuring in money already collected in late fees or "retainage" and splitting the cost 50-50 with the city, he calculates the cost in new money to the county at $6 million to $7 million paid out over two years. Going to court, he says, could cost $2.5 million, with no guarantee of a favorable outcome. A settlement would also get a contingent liability off the county's books.

The commission was scheduled to vote on the recommendation April 12th but deferred action out of respect for Fair, who had died only days before. The item is now scheduled for a vote on April 26th. Will commissioners listen to the voice from the grave or the contrary voices of two mayors, a former senatorial eminence, and their respective surrogates?

The name of the shiny silver sculpture at the southwest corner of the convention center is "Roof Like a Liquid Flung Over the Plaza." But given the resemblance of the piece (which was not part of the $92 million expansion) to a giant urinal and the expansion's history, some crude alternatives suggest themselves:

"Design Team in Deep Doo-Doo"

"Tax Money Flushed Down the Toilet"

"Big Drain on the Public Till"

Or, simply, "This is Where You-Know-What Hit the Fan."

Depending on whose story you believe, the expansion is either a monument to architectural and engineering incompetence, or to contractor incompetence and delay.

In 1997, the city of Memphis hired Williamson Haizlip Pounders Pickering to design the expansion and renovation of the convention center, including the demolition of the old Ellis Auditorium. In 1998, the city and convention center board chose Clark Construction Group as general contractor from a field of six bidders. Clark's bid was the lowest at $68.2 million. The original substantial completion date was May 6, 2001.

But the project was not completed until January 17, 2003 -- nearly two years late. A scheduling consultant hired by the city, Pearson Management Group, determined that Clark was responsible for all but 105 of the 620 days of delay. The city has collected $3.6 million in late fees.

Some of the delay was due to problems with the destruction of Ellis Auditorium.

"Clark attempted to implode a part of the existing building rather than demolish it conventionally," according to Less, Getz & Lipman, the law firm that represents the convention center board. "The implosion occurred on October 10, 1999, and was a spectacular failure. The failed implosion caused over $1 million in property damage and left live explosives on the site."

The cleanup added several months to the project. Clark has sued the implosion subcontractor, Eagle Amalgamated Services, in federal court. Clark has also sued the city and convention center board. "Clark and the subcontractors -- many of which are local businesses -- are being forced to finance the construction cost overruns on the project," the suit says. An attempt to resolve the lawsuit via mediation failed.

Clark blames the design team of Williamson Haizlip Pounders and the Pickering Firm, which it says "had never designed a convention center facility or even a complex commercial project." Clark bid the project based on the design team's drawings which contained "an inordinate number of design errors, inconsistencies, and omissions," such as missing footings, plumbing lines, and gas lines. Before the project was half done, nearly 2,000 problems had been noted, resulting in 700 change orders, the suit says.

Fifteen months after construction began, the city hired an independent design firm, Hellmuth, Obata & Kassabaum (HOK), to review the contract documents. But Clark says the city refused to share the findings in time to prevent the change orders.

In all, the city and convention center board spent more than $5 million correcting and clarifying the design. That information is available if elected officials decide to reject the settlement and go to trial.

In documents submitted during mediation, the city and convention center board say Clark worked "exceptionally slow" and that one construction superintendent "seemed more intent on building a claim rather than building the project." When it signed the contract in 1998, "Clark acknowledged that the plans and specifications were sufficient to enable Clark to determine the cost of all work and that the lump-sum price was sufficient to complete the work."

When Clark questioned the plans, the city claims it bolstered the design team with consultants and relocated the design firms to the site.

"For all its good-faith efforts to assist Clark, the city received in return a faulty implosion, thousands of errors in the steel erection, Clark personnel who were intent on building a claim rather than a project, over 500 days of unexcused delay, and a claim of over $27 million," according to the mediation statement.

By January 2004, Morris Fair knew his cancer was getting the best of him and his number was up. He was a political latecomer, appointed to the commission in 1996 and elected to a four-year term in 1998 after a celebrated career in banking as a financial-services innovator. He was defeated by John Willingham in 2002 but continued to serve as president of the board of the convention center. He was deeply concerned about the expansion project and the handling of the cost overruns.

When Clark's lawsuit went to mediation, Fair was a hardliner. Colleagues said someone at Clark had confessed to him that the project was underbid and the firm, which claims to do more than $2 billion of work a year, had not put its best team on the job. When the mediation attempt failed, Clark's representatives were visibly upset. One of them said in disgust, "We thought we were dealing with honest people," which infuriated Fair and other board members.

"It's unfair to the taxpayer when we have a strong case and have done everything we could possibly do," said Jim Kelly, former county chief administrative officer under Jim Rout and a member of the board. "We did all the right things in hiring experts and having people come in and supplement the job. The attorneys for the board say we have a good case and should fight. I think the taxpayers of this community would want us to fight. Clark should take it out of the money they have already been paid and pay these contractors."

Even as Fair, Kelly, and others were struggling to hold Clark close to the contract's original baseline, the influence of Sasser, the prestigious former senator and, more recently, ambassador to China, was weighing in the other direction. "I had known the Clark people previously," Sasser recalled this week. "And I am still a member in good standing of the bar. So when they [Clark] asked me to help, I did. My interest was in keeping Clark and the city and county from getting into protracted litigation. I tried to set up mediation or arbitration."

To that end, Sasser said, he met three times with Memphis mayor Herenton and had what he remembers as a telephone conversation with county mayor Wharton. He introduced both mayors to Pete Forster, Clark's CEO. Of his own meeting with Forster, which took place in early 2003 soon after he took office, Wharton said this week, "I was a little reluctant because, while I was an attorney, I didn't know whether he was a litigator or not. I told him I was a mayor now and litigating was not my core product, and he said litigating was not his core product. It was building buildings." Months and some negotiating back-and-forths later, that postulate seems to endure with Shelby County's mayor. "I've got other things that I should be doing, and they've got their stadia that they ought to be building" was how he put it last week.

By late last year, the arbitration effort had broken down, and not long after -- "when it became apparent there was no unanimity and somebody was going to have to handle this thing on a day-to-day basis," he said -- Sasser withdrew from the case and prevailed on Clark to accept as a substitute his longtime personal and political confidante, Memphian Karl Schledwitz.

Schledwitz maintains a busy entrepreneurial schedule but, like his mentor, keeps his hand in as a lawyer. And like his mentor, he has political experience and cachet. He was a conspicuous presence at several recent meetings of local governmental bodies looking into the Clark matter.

At some point, Mayor Herenton became a convert and, as Mayor Wharton recalls, called him up and said, "I'm not a lawyer, but I really want to settle this thing." Accordingly, the two mayors sat down with Forster some six weeks ago. "There were no lawyer hats involved," said Wharton. "We did that against the advice of our lawyers. It was kind of hard, but we were able to talk candidly. They were able to talk about their fears, and we were able to talk about our fears." Whether the issue was the dispelling of fears or something else, a meeting of minds would soon occur.

Pressure, on both mayors and their legislative bodies, was coming from several sources. One of them was Willie Nelson, a plumbing contractor, president of the local chapter of the National Association of Minority Contractors, and one of the new breed of Memphis millionaires, thanks to the work his company, Nelson Plumbing, has done installing plumbing and sewer lines on commercial projects such as FedExForum. Nelson Plumbing was one of the first local minority firms hired by Clark in 1998 and had a $6.5 million contract.

At length, agreement was reached at the mayoral level. Dutifully (and sincerely, Wharton maintains), county attorney Brian Kuhn and then city attorney Robert Spence then began to make the case to their respective legislative bodies.

After the mayors decided to settle for $17.8 million, the recommendation was put on the County Commission agenda in early March. Then and now, considerable to-and-fro attended the issue, especially as influential petitioners like developer Jackie Welch have pumped hard for the agreement.

Commissioner Tom Moss, a homebuilder who is also on the board of the convention center, said he favors the proposed settlement because the city and board were not blameless, not because of what all parties agree is considerable pressure from subcontractors. The proposed settlement is less than Clark could win if it goes to court, Moss added.

"They [subcontractors] are not going to get dollar for dollar," he noted.

Several commission members have expressed skepticism -- or something stronger -- about the settlement's terms or the rush to ratify it. Or both. John Willingham, a veteran vetter of what he sees as the suspect FedExForum deal (controversy over which helped him get elected in 2002), and Bruce Thompson, a consistent guardian of the public purse (who has declined, for example, to accept a new $200 swivel chair) have objected, and they are not alone. Seasoned lawyer Walter Bailey has wondered out loud why there has been no legal request for new data or information -- what lawyers call "discovery" -- and no move to seek depositions.

"I don't know how much more we'd learn that way," Wharton said, dismissively. "Oh, sure, if we go to trial and spend a lot of money on witnesses, we could know much more of a determinative nature than we know already. We can find out a lot more about what you ate for lunch, was it hot or cold when you got off the plane, and all that kind of stuff."

As it happened, opponents of the settlement would be emboldened by something more tangible -- exalting, even -- than a mere deposition. When Fair, who had only weeks to live, learned that the mayors had reversed direction, he asked for an opportunity to meet with the County Commission. He came to a March 8th committee meeting wheel-chair-bound and hooked up to an oxygen tank. At times shaking, whether from infirmity or from indignation, the onetime convention center board chairman and county commissioner -- by general consent one of the most beloved and respected ever to serve in public office -- condemned the proposed settlement.

He reviewed the steps taken, the concessions made, and the helper firms hired by the board in order to facilitate Clark's task; the contract extensions and change orders awarded to the company; the unnecessary obstacles raised and the delaying tactics employed, as Fair saw it, by the giant construction company; and, finally, the terms of a contract that seemed to preclude the very demands incorporated in the proposed settlement.

Throughout his tenure, the convention center board had resisted Clark's demands, said Fair, concluding. "The city and county should now resist as well."

At his request, the commission delayed action until its then-pending meeting of April 12th. After Fair's death on April 7th, and an intervening funeral that was attended by virtually anybody who was anybody in local government, the matter of a settlement was delayed once again until the commission's scheduled meeting of Monday, April 26th.

On the eve of the showdown, Herenton, the apparent prime mover in accepting Clark's settlement offer, has declined to comment on his motives or any other aspect of the matter. But Wharton has not been so circumspect.

"Let me speak from my side of the street," Wharton said this week. "I'm involved in a battle, a quest, to get the county's bond rating back to its Double-A status." Double-A-Plus with one rating agency; Double-A with another. "Everything that hangs out there in the way of big lawsuits is something that is to be reported as a contingent liability, which is simply something else, an uncertainty, that hangs over the county's financial status. When you're in the situation we're in, sometimes a 'bad' -- put that in quotes -- settlement is better than the possibility of winning a good lawsuit down the road, which would come only after perhaps millions of dollars more in attorney's fees, discoveries, court costs, and all of that."

Thompson is skeptical: "Even if you take half of the settlement off [the city's share], you still are paying out a lot more than the litigation would cost the taxpayer." And that, he said, is even if you deduct the $3.7 million that Wharton calls unpaid "retainage," as well as the other sums mentioned by Huntzicker.

With the showdown looming, Thompson and other commissioners cite approvingly city council member Barbara Swearengen Holt's contention that a study commissioned during the broken-off mediation process indicated the possibility that Clark might owe money rather than the other way around.

Wharton professes equanimity about the outcome: "If the commission decides not to settle, I won't lose one minute of sleep. I'll just sit down with Brian Kuhn, work out a litigation budget, get them any outside help or expertise they might need, and go to it. I want it over, one way or the other. Either I want to settle it or go to the courtroom and battle it out. I don't want to keep it in limbo."

But with din from the battle over the FedExForum yet resounding, with the new controversy threatening to become a cause celebre in its own right, and with Morris Fair's gallant defiance of the Clark claim still resonating, the Shelby County mayor offers this resolve: "We need to declare a moratorium on any big building projects. Henceforth, when we go into any building project, we can all be working in the same universe, with the same methods and oversight, so that Morris Fair will not have been out there by himself. We need a building authority like they have with the state. We need to make sure we don't get into this hole again."

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